INTERVIEW: SMEs need tailored policies, finance: trade group head

Small and Medium Enterprises (SME) make up 90 percent of the nation’s industry and employ nearly 80 percent of the workforce, and it is surprising how such a large force is often passed over by the government, simply because larger enterprises have more capital, National Association of Small & Medium Enterprises honorary chairwoman Lin Hui-ying said. In an interview with the ‘Liberty Times’ (sister paper of the ‘Taipei Times’) staff reporter Lo Chien-yi, Lin said she hopes the government can offer a comprehensive plan to help SMEs break out of the confines of the Cabinet-defined ‘five shortages’ — referring to a lack of land, water, power, skilled workers and talent — but also to address the three additional shortages of funding, marketing resources and government-assisted planning

National Association of Small & Medium Enterprises honorary chairwoman Lin Hui-ying speaks to the Taipei Times’ sister newspaper the Liberty Times in Taipei on Nov. 5.

Photo: Lo Chien-yi, Taipei Times

Liberty Times (LT): In the old glory days of Taiwan’s economy, it was driven by SMEs. What distinguishes today’s companies from those of the past?

Lin Hui-ying (林慧瑛): The nation’s SMEs are still more dynamic and energetic than in other Asian countries. There are 1.48 million such enterprises in Taiwan, or about 98 percent of all firms; this is about the same percentage as in Japan, South Korea and Singapore.

In terms of employment, Taiwan is ranked close to the top, with over 8.8 million, or 78 percent, employed at SMEs. This number is higher than the 60 percent in Japan, 70 percent in Singapore, and 40 to 60 percent in the UK and France.

While it is true that Taiwanese SMEs used to make the proverbial “living out of a single suitcase,” emphasizing constant movement and relying on original equipment manufacturing (OEM) orders, the market has changed.

SMEs now have become more reliant on the domestic market. According to Ministry of Economic Affairs statistics, SMEs contributed NT$11.8 trillion (US$391.1 billion at the current exchange rate) to GDP in 2015, more than 85 percent of which came from domestic sales.

Most SMEs were active in retail and manufacturing, while construction came in third.

I mention these numbers to highlight the importance of SMEs to the nation’s economy. Like worker ants, they have created the most jobs in the nation and form the foundation of the Taiwanese economy.

While some SMEs are still focused on foreign markets and have seen some success, they cannot not compete with listed corporations that have access to greater capital. Only 15 percent of the NT$11.8 trillion contributed by SMEs was from exports.

In other words, SMEs have attuned themselves to the Taiwanese market and are more concerned with the domestic consumer and investment environment.

LT: What challenges do SMEs face?

Lin: SMEs are more agile and flexible than large corporations, but in the wider business environment, they are still plagued by difficulties, which we could separate into internal and external problems.

In terms of internal difficulties, Taiwan does not have a satisfactory environment for production. For example, all SMEs confront shortages of water during the dry season and the rising cost of electricity, as well as an unstable power supply due to the government’s nuclear-free homeland policy.

In addition, Taiwanese society is aging, while birthrates are in decline, creating an imminent shortage of available employees. This directly affects SMEs.

Most importantly, aside from the “Five Shortages,” addressed by the government — a shortage of water, power, land, workforce and skilled labor — SMEs are further plagued by a shortage of funding, marketing resources and government-assisted planning.

When banks consider what companies will be granted loans, larger corporations always come first. This creates a situation where those who truly need the credit —SMEs — are unable to secure loans from banks due to inadequate corporate finance, collateral and credit ratings.

Provided they actually succeed in securing loans, SMEs are almost always the first to be called by banks wishing to “recoup losses” when they are experiencing a “rainy day.”

Yes, the government has set up a few foundations specifically to lend to SMEs, but looking at applicants to the Small & Medium Enterprise Credit Guarantee Fund of Taiwan who received credit last year — a total of 118,000 — the average coverage ratio is low.